It stands out like a beacon of light in a storm,having withstood the test of the worst slowdown since the inception of the IT industry in the country. In a year of layoffs and benchings, it has generated employment at a faster rate than any other before it, and in times of slowing growth rates and slackening revenues, it has registered its strongest growth ever. In the process, the IT-enabled services segment has emerged as the new infotech wave, one that promises to get bigger each year, and promises to equal in revenue size and employment generation the IT industry itself—or perhaps even surpass those numbers.

And if that sounds hard to comprehend, chew on these ITeS numbers:

• Growth rate of 73% in 2001-02, against 14% for the overall IT industry;
• From Rs 7,100 crore in 2001-02 to Rs 81,000 crore in 2008;
• From 106,000 employees in March 02 to 2 million employees in 2008;
• From 1.4% of GDP in 2001-02 to 7% in 2008 (IT services plus ITeS);
• Forex inflows to increase ten-fold from $6.2 billion in 2001-02 to $60.72 in 2008 (ITS plus ITeS);
• The largest player, General Electric, to increase employee count to Rs 20,000 by 2005; and 
• Customer care, HR and payment services will constitute 70% of long-term ITeS potential.

Nasscom has 210 registered ITeS companies 50 global companies to offshore services to India ITeS has increased from 9% to 21% of the IT industry ITeS is expected to account for 37% of the country’s software and services export segment by 2008

It currently employs 106,000 of the country’s workforce and is expected to generate jobs for over 1.1 million Indians in the next 3 years. The ITeS sector has opened up an entire vista of opportunities. With the Nasscom-McKinsey study indicates a revenue potential of Rs 81,000 crore ($17 billion) by 2008, the ITeS space has been moving ahead fast, growing in size and potential, defying all market deterrants. Whether it was 9.11, the threat of a World War or the overall economic downturn, the industry has continued to grow at the same pace, and with the same enthusiasm. In 2001-02, it grew by about 73%, rocketing from a turnover of Rs 4,100 crore in 1999-2000 to nearly Rs 7,100 crore ($1.5 billion), according to Nasscom estimates.

The segment itself includes people-intensive services that are delivered over telecom networks or the Internet to a range of business segments and verticals. These include telemarketing, help-desk support, medical transcription, back-office accounting, payroll management, maintaining legal databases, insurance claim, and credit card processing. India, with its strengths in the form of low-cost manpower, a large pool of skilled, English-speaking workforce and government support, is emerging as a preferred destination for outsourced services. The country is well positioned to derive benefits from the global ITeS market.

A study conducted by KPMG on competitiveness found India rated very high for its ‘people factor’, apart from a supportive policy framework. However, there were some drawbacks like the absence of a clear marketing and positioning platform for the industry at large. Another survey by Merrill Lynch revealed that cost cutting is a key criterion for outsourcing services to India and cost savings were viewed as India’s topmost competitive advantage. Considering that labor costs represent as much as 20-30% of a typical client’s business, India’s low-cost skills seem attractive. The salary of a database manger in India could be as low as a fifth of that in the US.

Business potential
The level of value add from ITeS depends on the range of services offered, ranging from standardized and simple infrastructure services (network management, secretarial services etc) to specialized and complex workflow management (customer research, product design, inventory management etc). Based on the ownership structure and geographic distribution of clients, KPMG classifies ITeS businesses presently operating in India under two categories: Outsourcing services or outlocation services.

Reforms Recommended Policy changes required for creating a more favorable growth environment for IT-enabled services: Telecom policy Allowing connectivity between domestic and international call centers. Allowing ITeS providers to set up international gateways (currently allowed only for ISPs) for captive use. Allowing sharing of bandwidth at group-level as well between companies, gradually migrating to bandwidth trade exchanges. Classifying Internet-related projects as infrastructure projects to allow four-year debt servicing moratorium. Allowing ITeS providers’ exemption from payment of royalty charges related to radio link connectivity required for backup. Increase FDI limit from 49% to 74%. Internet and software policy Import benefits similar to those offered to ISPs, to be made available to ITeS with extension of benefits beyond just hardware equipment. Special software licensing benefits to encourage start-up. Ease in procedures for setting-up of Internet Payment Gateways (currently allowed by the RBI only for members of the inter-bank cheque-clearing system i.e. banks) Tax relief on end-consumer computer equipment such as PCs, set-top boxes. Approval processes Appointment of a single, national-level, licensing and monitoring authority for ITeS licensing and service monitoring. Reducing the time for approval required from DoT (Department of Telecommunications) by allowing approvals at the Additional Director/Joint Director level.

Outlocation services are for captive use by companies while outsourcing services are through a third-party service provider. Multinationals such as GE that invested in remote services as captive facilities for worldwide group operations have adopted a primarily outlocation focus. Spectramind, operates as a pure outsourcing service provider. It is funded by banks and VC finance and operates a niche of contact center services for Fortune 200 companies.

For most IT-enabled service providers in India, a majority of the revenue comes from serving clients in industries such as banking and finance, insurance, e-commerce, software, telecom, media and entertainment, retail and airlines. Most of them currently focus on a narrow portfolio of services, settling for low-end work. While most ITeS companies plan to leverage existing skills, expertise and established reputation with clients to grow their portfolio of services, they remain cautious about migrating their service portfolio to high value services. Services in the area of human resources and administration, digital media, IT and technical support, research, and design services could be the new growth areas.

Although there are about 210 IT-enabled service companies currently registered with Nasscom, there are many more players offering a whole range of such services. Several companies such as HSBC, Standard Chartered Bank, American Express, Citi Bank, and British Airways have or are setting up back-office processing centers in India. Indian IT companies like Wipro, HCL Technologies, Mphasis BFL and private telecom group Bharti Enterprises are among a few that are expanding their services to ITeS. These companies have the advantage of an existing IT customer base so they can tap clients for BPO (Business Process Outsourcing) as well.

Key trends
The last one-year has been quite significant for ITeS as it has been witness to some key trends that are shaping the industry. The industry is not just growing in terms of business, but is also gaining more respectability in the international market. Potential outsourcers now feel more comfortable handing over their work to an Indian company. An experimentation that started with Convergys outsourcing a few seats to 24/7 Customer a couple of years ago, has led a others like Sitel, West, Stream, and more recently Teleperformance USA and 7C opening up facilities.

Indian companies are looking at various options to acquire more clients. The professional ones, who understand the US market better, are taking the long-term approach of marketing directly to clients.Some of the bigger companies are also trying to access the US market by acquiring companies abroad. Among the notable ones are Hero Group, which acquired a major stake in First Ring, a US company with a delivery facility in Bangalore, Essar Group that acquired eTelequest and E Serve Technologies (the BPO venture of HCL Technologies), which bought Apollo Call Center in Belfast, Northern Ireland from BT.

When it comes to service delivery, most of the good companies are beginning to realize the need for differentiation. Daksh, for instance, has 90% focus on customer service and for HCL Frontline, it is 100% tech support. One common example of using technology to build a differentiation is doing customer response analysis. In fact, many companies like Spectramind, Daksh, 24/7 and Epicenter are doing that. A few others like E Serve and Global are trying out integrated global delivery models. They are offering different services across multiple geography-based delivery facilities with multiple language, multiple skills and redundancy also built into the model.